The research company CLSA predicts that whilst the rest of the world is tightening its purse strings, the global luxury market will increase by 8% during 2012, largely driven by the appetite of the Chinese for luxury items – where it is predicted to grow by 25% by the end of the year.

“We think that the demand for luxury goods in China and Asia is driven by the rise of the middle class, and that is a structural story,” Aaron Fischer, Asia-Pacific head of consumer and gaming research at CLSA, told FinanceAsia in a telephone interview last week.

Fischer added that even if the economic slowdown were to impact the Chinese market directly, this would have no impact on their consumption of luxury goods.

Fischer’s team carried out this analysis based on the Japanese market, which in the past experienced a very similar explosion of luxury goods consumption. However, it acknowledged that the Chinese market has far more room for growth due to the increased number of outbound Chinese tourists travelling to luxury European hotspots like Paris, London and Milan.

Hong Kong has attracted multiple IPOs from Prada and Samsonite amongst other international luxury brands, all attracted by the successful Chinese growth story. But not all Chinese are welcoming the increased presence of luxury brands in their country, as it does highlight the growing income gap between rich and poor. Reportedly, Beijing has put in place controls around luxury advertising, asking companies to remove words such as “luxury,” or royal from their marketing materials.

Yet there’s no doubt that China is still one of the strongest markets in terms of demand for luxury goods – with Latin America, the Middle East and other emerging markets following not far behind.

“I don’t want to rule out Latin America and the Middle East. They are attractive markets as well,” Fischer said. “And over time there’ll be more opportunity in India and Indonesia, and some other Southeast Asian countries like Vietnam.”

Isaac Mostovicz writes that "Made in China" is coming to stand for high quality, artisanal and crafted ...

A recent article in the Financial Times describes an evolution that Chinese consumers are undergoing. As the country begins to encourage domestic spending, attracting consumers at home has become a priority for retailers – who are finding that their own consumers are some of the most difficult to please.

Image courtesy of Stock.XCHNG

And it’s not just within the luxury sector, when consumers are buying big-ticket items such as handbags and cars. Food, electronics, gadgets and homeware are all being scrutinized with an increasingly eagle eye.

Tesco, the UK retailer, says the Chinese middle class is “becoming increasingly sophisticated in the quality of products they purchase”, including buying more foreign and high-end brands.

The Chinese appetite for fake goods seems to be diminishing, too. Escada, the women’s designer clothing group conducted a survey which found that Chinese consumer willingness to buy fakes has diminished, from 31% in 2008 to 12% by 2010.

Despite an appetite for luxury carrier bags in the past, as salaries increase and tastes become more cultured, a cheaply-made item with a designer logo is no longer good enough. The middle class is attracted to provenance, to an appreciation of quality, to the story or time invested behind the product.

Within Janusian thinking, this posits the Chinese as moving towards the Lambda mindset – seeing an item’s value not in terms of price, but rather, in terms of craftsmanship. They’re interested in the time that it took to make – whether it’s unique, and overall the quality of the item – rather being attracted to the glitz of a fake logo.

Isaac Mostovicz writes that new designer bathrooms with Chinese tastes in mind show the influence of China on the luxury market...

According to the FT, bathrooms are the latest luxury product vied for by wealthy Chinese consumers and are making a mark on the rest of the world.

The $6,400 Numi toilet by designer bathroom manufacturer Kohler is currently one of most popular items in bathroom-ware. The Numi has its own foot warmer, heated seat, bidet washlet and built-in music system (inspired by China’s entertainment-obsessed consumers) and is controlled by a touchscreen remote. Kohler designer the toilet with the Chinese luxury consumer in mind.

While I don’t mean to ponder on toilets for too long, what the Numi illustrates is the growing influence of Chinese tastes on the global markets. Before, luxury goods manufacturers sold items to China that were based on western tastes. Later on, these items became tailored to Chinese tastes. Now, those Chinese tastes are dictating the luxury goods that the manufacturer makes. The FT notes that Beijing is “aiming to transform China from the world’s sweatshop to its design studio.” More evidence of the increasing influence of China…

Which car you drive has long been established as a symbol of status. That doesn’t look set to change, and in emerging nations where consumers are eager to make a statement about their newfound wealth luxury carmakers are enjoying strong sales.

According to a recent article in the Economic Times, China is the global driving force for premium luxury cars as consumer enthusiasm fuels sales. This is perhaps not surprising given China is close to having one million millionaires with a personal wealth of 10 million yuan or more – up 9.7 percent from last year.

At the Shanghai Auto Show last week, British car manufacturer Aston Martin claimed that all of its five One-77 cars for the China market were ordered even before the Auto Show opened to public, demonstrating the strength of the demand.

According to Zhong Shi, a Beijing-based auto analyst interviewed for the Economic Times article, “Chinese consumers love to show off their wealth by having unique luxury products or getting them one step ahead of the others.”

This clearly reflects the habits of a Lambda personality type who are likely to make choices based on how it will help them stand out and benchmarks them against others. This is in contrast to a Theta personality type who, instead of wanting to stand out, would seek to contextualize themselves, and so perhaps would not always be driving demand.

Stephan Winkelmann, president and chief executive officer of Italian super sports carmaker Lamborghini, says China will be Lamborghini’s biggest market this year, after its sales nearly tripled year-on-year in 2010. Other high-end carmakers such as Ferrari have similar expectations.

For an insight into how luxury carmakers evolve over many generations, and continue to meet emerging market demand, you may be interested to read this interview between the CEO of Rolls-Royce, perhaps the most renowned luxury carmaker of all time, and Forbes India.

As I have discussed in recent posts, luxury stocks are booming in emerging markets. As an investor, this surge in wealth could be fruitful.

James Hall from the Daily Telegraph recently reported that urbanisation on an unprecedented scale is taking hold in China, the nation set to overtake Japan as the world’s largest luxury market by 2015. It is this “new consumerism” which is driving luxury growth in many emerging markets.

As Huang Sun highlights, while the long-term outlook for luxury stocks remains strong, they are susceptible to geopolitical events. Luxury spending has been hit hard following the recent Japanese earthquake and tsunami. Huang Sun estimates that the Japan and Middle East events will reduce sales growth by 2% in 2011.

For Huang Sun, prosperous luxury brands are those with successful brand management, strong financials and which are broadly diversified across regions and sectors.

Isaac Mostovicz writes that China has revealed plans to restrict the marketing of “luxury” and “high class” products in a bid to balance a widening wealth gap between urban and rural areas...

In 2010 China overtook Japan to become the world’s second largest economy, marking the beginning of a new era for China. Despite this, the wealth gap has become increasingly prominent in recent years. Just earlier this month China recorded its widest wealth gap since economic reforms began in 1978. According to the National Bureau of Statistics, the average annual income in China’s cities stands at more than three times the average income in the countryside.

China recently announced that reining in inflation was a priority for 2011, and just today news emerged that Beijing is to introduce a ban on all outdoor advertising that seeks to promote high-end lifestyles, suggesting that there is concern among the country’s leaders about the need to rebalance China’s economy.

The Beijing Administration for Industry and Commerce said in a recent statement relating to the ban, that businesses have been given a deadline of 15th April to rectify such ads, along with any that excessively promote “foreign” things, claiming that such promotions help create a politically “unhealthy” climate.

Newly forbidden words include “supreme”, “royal”, “luxury” or “high class”, which are widely used in Chinese promotions for houses, vehicles and wines, it said.

This may pose a problem for luxury brands wishing to advertise in Beijing, but as I have mentioned in previous posts, the surge in China specific e-commerce platforms, and emerging use of social media for marketing luxury, would suggest such brands will instead simply switch tools to continue benefitting from China’s growing wealth.

This week, Tiffany unveiled its ’Journey behind the door’ online campaign, developed by Proximity Live and BBDO, in conjunction with a photography exhibition featuring mainland celebrities. The digital site, at TiffanyKeysPhotos.com, features a sample of the photographers’ works and includes community features, encouraging audiences to share their interpretations of the theme ‘Journey behind the door’ via BBS posts and photographs.

The new digital campaign is a different approach for luxe, which has previously avoided digital because of a perceived loss of exclusivity. But now that those same Lambda personalities who avoided the web are now practically digital natives. As a result, the luxe brands have less motivation to avoid it, too.

Isaac Mostovicz writes that the surge in newly-wealthy Chinese Lambdas has boded well for BMW's bottom line...

Luxe in China continues to grow at staggering rates. Some of this could be cast-offs from the falling Japanese luxe market. Whatever it is that is luring luxe brands to China, it is showing no signs of letting up.

In China Daily this week it was reported that luxury car maker BMW is planning for a seven-fold increase in its China production capacity:

The German carmaker’s strategic plan is to increase annual production to 300,000 units with local partner Brilliance China … Its joint venture with Brilliance now has a 41,000-unit plant in Shenyang, capital city of northeastern Liaoning province. The facility’s capacity will be expanded to 75,000 units next year.

I wrote previously that this surge in luxe capital and spending in China is likely the work of newly-wealthy Lambda personalities who are splashing their cash around. This won’t save the entire industry, but for luxe brands in China, this bodes well for the future.

Beijing’s luxury shopping market is now competing with Shanghai and Hong Kong as the world’s luxury brands flocked to newly opened stores, in time for the Olympics.

China has come a long way. A luxury consumer market that did not exist 20 years ago is now seemingly on an unstoppable path to dominate top-end retail. China is already the world’s third largest luxury goods market, behind only Japan and the U.S. It is predicted to become the world’s largest by 2015. Beijing’s high-end retail space has expanded by 89 percent in the last two years, according to the real estate service agent Jones Lang LaSalle. There has already been five new mid- to high-end retail projects opened in Beijing in the first half of this year, with a further 24 expected by the end of the year.

Before the Olympics Games, Beijing’s luxury retail market tended to be low-key, especially in contrast with its rival Shanghai. Luxury shoppers would even go as far as swapping the buttons on their designer suits for plain ones to avoid questions about the source of their money. Now we see Beijing leading the way with 3 million square feet of luxury commercial space being developed since 2007.

However, with such a wide variety of high-end shops in Beijing, retail observers have commented that brands are facing a growing challenge to stand out and create a niche for themselves. With the post-Olympic cool down some luxury brands may find it harder to succeed as China’s 300,000 millionaires increasingly embrace the lifestyles and buying habits common to the world’s wealthier nations, attracting every luxury brand into Beijing and thus flooding the luxury goods market.